Saudi Arabia Real Estate Market Review - Q2 2021 - A quarterly review of the residential, office, retail and hospitality markets across Saudi ...
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A quarterly review of the residential, office, retail and hospitality markets across Saudi Arabia Saudi Arabia Real Estate Market Review Q2 2021
S A U D I A R A B I A R E A L E S TAT E R E V I E W | Q 2 2 0 2 1 S A U D I A R A B I A R E A L E S TAT E R E V I E W | Q 2 2 0 2 1
OFFICE MARKET
Market Performance Indicators
Key trends
R I YA D H JEDDAH DMA Grade A and B rental rates and YoY % change as at Q2 2021
Riyadh's office market continues to Jeddah's office market performance Rental performance in Dammam Riyadh Jeddah DMA
experience fragmented performance. remained relatively subdued in the year Metropolitan Area's (DMA) office market
1,475 744 992 694 904 576
Average Grade A rents increased by to Q2 2021, with Grade A rents falling continued to soften, with Grade A and SAR/sqm SAR/sqm SAR/sqm SAR/sqm SAR/sqm SAR/sqm
1.5% over the last 12 months, while marginally by 0.8%. Grade B rents Grade B rents declining by 1.7% and 2.5%,
Grade B rents experienced declines of declined by 1.6% over the same period. respectively, over the last 12 months. Saudi Arabia's unemployment rate has
1.1% over the same period. The relative dropped to its lowest level in almost five
outperformance of Grade A offices can Like in many other markets around the Supply, however, continues to trickle on years. The unemployment rate for Saudi Grade A Grade B Grade A Grade B Grade A Grade B
be attributed to a marked increase in the world, the pandemic is driving a rethink to the market. Q2 saw the completion citizens fell to 11.7% in Q1, down from
1.4% -1.1% -0.8% -1.6% -1.7% -2.7%
number of licences granted to foreign in occupational strategies, keeping office of Joaib Tower and Deim Commercial 12.6% at the end of last year. Y-o-Y Y-o-Y Y-o-Y Y-o-Y Y-o-Y Y-o-Y
investors wishing to set up businesses demand muted. Indeed, some businesses Centre, which added approximately
in the Kingdom. Indeed, the number have begun to shrink their office 22,600 sqm of space to the city's supply. Several factors have contributed to
foreign investment licenses issued have footprints, not necessarily in response to These additions bring the total office this; primarily the government's rapid
almost doubled from about 700 in 2018 emerging hybrid working patterns, but stock to 1.3 million sqm. By 2023 total response to COVID-19 and economic
to nearly 1300 last year, suggesting that more due to the need to contain costs. stock is expected to grow to 1.5 million reforms stemming from Vision Grade A and B vacancy as at Q2 2021
not only is office demand being created, This cost-conscious behaviour is also sqm. 2030, which have led to an overall
but it is also being sustained. manifesting itself in the form of a rise in improvement in business conditions. Riyadh Jeddah DMA
requests for flexible payment plans and Over the next 12 months we expect the
Furthermore, we have also seen an shorter leases. office market in DMA to remain under In addition, an increase in female 6% 32% 15% 30% 28% 41%
uptick in office requirements from newly pressure. Rents and occupancy rates are participation in the workforce, which
created public sector companies. In Supply however continues to grow, with likely to soften further as supply outstrips rose to 33.6% from 32.1% in Q1, has
general, demand is expected to continue the MASIC Business Centre and Nagy demand. In the long term, however, we helped to lift overall employment levels.
rising as government driven economic Tower adding 25,000 sqm of new space see demand for office space picking up
reforms spur renewed confidence and to the city’s stock in Q2, taking the total as economic reforms drive job creation 1 pp -2 pp -1 pp -2 pp -1pp -2 pp
hasten business growth. to 1.3 million sqm. By 2023, this figure is rates and inward investment, spurring Y-o-Y Y-o-Y Y-o-Y Y-o-Y Y-o-Y Y-o-Y
expected to rise to 1.8 million sqm. office space demand.
On the supply front, the completion Grade A Office Grade B Office Occupancy Vacancy
of a small office development along
King Fahad Road added approximately
Evolution of office supply
9,000 sqm to the city’s supply. This
minor addition left the total office stock
relatively unchanged at 4.2 million sqm.
Total office space is expected to reach 5.3 4,227 Riyadh
million sqm by the end of 2023.
1,290 Jeddah
1,254 DMA
200 500 800 1,100 1,400 1,700 2,000 2,300 2,600 2,900 3,200 3,500 3,800 4,100 4,400 4,700 5,000 5,300 5,600
Q2 2021 2021f 2022f 2023f sqm (thousands)
Source: Knight Frank
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RESIDENTIAL MARKET
Market Performance Indicators
Key trends
R I YA D H JEDDAH DMA Villa & apartment sales prices and YoY % change as at Q2 2021
The residential sector has been a key area In the Red Sea coastal city of Jeddah, the Mirroring the trend in Jeddah, average
Riyadh Jeddah DMA
of focus for the government in recent residential market appears to be a story of apartment prices in DMA increased by
years, with attention primarily centred two halves: apartment prices have risen 4.6% in the year to Q2 2021, whereas 3,858 3,524 5,037 3,892 3,267 3,056
on boosting home ownership levels by 5.9% over the last 12 months, while average villa prices fell by 4.1% over the In the year to the end of Q2, residential SAR/sqm SAR/sqm SAR/sqm SAR/sqm SAR/sqm SAR/sqm
and providing higher quality housing villa prices have declined by 2% over same period. Like Jeddah, affordability sales volumes across Saudi Arabia
options and the efforts are paying off. the same period. The drop in villa prices issues are growing in DMA, with average surged by 26%, with the total value
The mortgage market has boomed and highlights the rising affordability issues, villa prices standing at 6 times annual of residential transactions increasing
the delivery of affordable residential with the average income multiplier for incomes, compared to 2.8 times annual by 2% over the same period. Around
units through the Sakani Program has villas standing at 12.4, compared to 4.8 incomes for apartments. 58,000 residential transactions were 4.7% 7.6% -2.0% 5.9% -4.1% 4.6%
Y-o-Y Y-o-Y Y-o-Y Y-o-Y Y-o-Y Y-o-Y
underpinned the market’s buoyancy. for apartments. And this disparity looks recorded in Q2, compared to 47,000
Unsurprisingly, apartment and villa sale set to widen, particularly given the Unlike elsewhere in the Kingdom, deals during the same period last year.
Villa Apartment
prices have increased by 7.6 % and 4.7%, lack of suitable supply aimed at mid- transaction volumes have slipped The government's continued efforts to
respectively, over the last 12 months and tier buyers, which is fuelling a supply- in DMA, falling by 8% over the last widen the mortgage market, combined
demand for housing continues to rise. demand imbalance. 12 months, while the total value of with the delivery of large affordable YoY % change in the volume and value of residential transactions as at Q2 2021
transactions decreased by 12% over the housing schemes through the Sakani
On the transactions front, the total Residential transaction volumes and same period. The rising affordability Program have fostered a remarkably Riyadh Jeddah DMA
number of homes sold has increased by values in Jeddah increased by 44% and challenge, combined with a lack of resilient residential landscape.
77% in the 12 months to June, while the 13% respectively in the year to June; a suitable supply for middle and lower tier
total value of transactions has grown trend driven by a notable increase in the buyers, is contributing to slowing sales Indeed, the value of real estate loans Volume 77% Volume 44% Volume -8%
by 34% over the same period. The uptake of mortgages provided by banks activity. provided by Saudi banks increased
government’s continued focus on the and financial institutions. by 10.8% to reach SAR 474.5 billion
sector is also delivering a far more active As at the end of Q2, DMA's housing stock in Q1, with new mortgage loans for
development market, with 100,000 Jeddah's housing stock is expected to stood at about 338,000 units. 20,000 individuals accounting for 75.4% of Value 34% Value 13% Value -12%
homes expected to complete by the end grow by just 35,000 units by the end of units are due to complete by the end the total. According to data from the $ $ $
of 2023, taking the total housing stock in 2023, taking the total number of homes of 2023, most of which are expected Saudi Central Bank, around 90,000
the capital to 1.4 million units. to over 890,000. to be better quality apartments and new mortgage contracts were issued in
townhouses. Q1 2021, with a total value of SAR 46.7
billion, up 50% from Q1 2020.
Evolution of residential supply
A view of Riyadh Around 17,500 new mortgages worth
SAR 7.5 billion were issued in June alone,
up 13.3% from June 2020. 80% were 1,300 Riyadh
linked to villa or townhouse purchases,
856 Jeddah
with the rest granted to purchase
apartments and residential land plots. 338 DMA
This is perhaps unsurprising given that
200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500
villas are, on average, more than three-
times as expensive as apartments across
the country.
Q2 2021 2021f 2022f 2023f units (thousands)
Source: Knight Frank
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RETAIL MARKET
Key trends Market Performance Indicators
R I YA D H JEDDAH DMA Retail market lease rates as at Q2 2021
Average regional and super-regional Like Riyadh, rents in Jeddah's retail Mirroring other markets elsewhere Riyadh Jeddah DMA
mall lease rates registered a decline of 1% market faltered during Q2, with average in the Kingdom, DMA's retail market
2,670 1,950 2,685 1,740 2,295 1,635
across the Saudi capital in the 12 months regional and super-regional mall rents experienced rental declines of 2.7% and
SAR/sqm SAR/sqm SAR/sqm SAR/sqm SAR/sqm SAR/sqm
to the end of June. Community malls falling by 1.5% in the 12 months to the 1.7% in community malls and regional
According to the Saudi Central Bank
(-1.5%) too have seen rents softening. end of Q2. Community mall rents fell by and super-regional malls, respectively,
(SAMA), consumer spending in Saudi
Repeated lockdowns and border closures 2.8% over the same period. over the last 12 months.
Arabia increased by 2.1%, to around SAR
have taken their toll on footfall and
261 billion in Q1, compared to SAR 256
retailers’ appetite to expand or take new The market-wide vacancy rate in Jeddah Despite there being no major new -1.0% -1.5% -1.5% -2.8% -1.7% -2.7%
billion over the same period last year. Y-o-Y Y-o-Y Y-o-Y Y-o-Y Y-o-Y Y-o-Y
space has remained subdued as a result. rose to 15% in the year to Q2. The rising additions of stock, the vacancy rate
vacancy rate was in large part driven across DMA crept up by 2% as retailers
The food & beverages sector has
Furthermore, new supply continues by the completion of Wow Square and continue to right size operations to
enjoyed the most significant boost, with
to be delivered to the market, further Crystal Mall, which together added match the much-reduced footfall as a Regional/Super-Regional mall Community mall
spending surging by 35% to SAR 17.4
dampening the prospects for a around 23,000 sqm of new space, taking result of the pandemic. Total retail stock
billion, while spending in restaurants
return to growth in rents. The most the total formal retail stock to almost 2 currently stands at about 1.2 million sqm.
and cafes alone rose by 59% over the Retail occupancy rates
noteworthy completions this quarter million sqm. By 2023, this figure is expected to reach
same period.
were Park Avenue and the extension 1.6 million sqm.
of Nakheel Mall, which together added By the end of 2023, this is expected to rise Riyadh Jeddah DMA
This relative outperformance is linked
approximately 100,000 sqm to the city’s by almost 30% to 2.7 million sqm, which In the short term, we expect lease rates
in part to the slight easing of lockdown 17% 18% 13% 15% 8% 10%
retail stock, taking the total to 3 million is likely to keep rental growth suppressed. and occupancy levels of regional and
restrictions, which boosted footfall
sqm. super-regional malls to demonstrate Q2 Q2 Q2 Q2 Q2 Q2
across the Kingdom’s food and beverage 2021
greater stability as no major schemes 2020 2020 2021 2020 2021
outlets.
While demand for new space from are due to be delivered over the next 12
retailers has been mute, developers months. -1 pp -2pp -2 pp
have taken note of changing attitudes Y-o-Y Y-o-Y Y-o-Y
and expectations from consumers, with
the majority of new supply focussing
Occupancy Vacancy
on lifestyle or experience-based retail
developments, where placemaking is
central. In general, we expect rents to Evolution of retail supply
remain supressed, particularly as new Online retailing continues to boom in
completions look set to accelerate. Saudi Arabia, chipping away at demand
In fact, some 700,000 sqm of retail for new bricks and mortar stores. Across 3,004 Riyadh
space is due to complete by 2023. the country, e-commerce sales increased
by 28% to reach a record SAR 22.5 billion 1,999 Jeddah
in 2020. Saudi Arabia’s e-commerce
market is forecast to grow at a CAGR of 1,157 DMA
7% between 2020-2024 (Statista).
200 500 800 1,100 1,400 1,700 2,000 2,300 2,600 2,900 3,200 3,500 3,800 4,100 4,400
Q2 2021 2021f 2022f 2023f sqm (thousands)
Source: Knight Frank
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HOSPITALIT Y MARKET
Key trends Market Performance Indicators
R I YA D H JEDDAH DMA KPIs - ADR, Occupancy and RevPAR - Y-o-Y % change YTD May 2021
Average daily rates (ADR) and average Jeddah’s hospitality market has In the year to May 2021, average
Riyadh Jeddah DMA
occupancy levels have continued to outperformed the rest of the country for occupancy in DMA remained relatively
ADR Occupancy ADR Occupancy ADR Occupancy
slip, dropping by 3.3% and 18.4%, a number of reasons. The principal driver stable at c.50%, while ADR grew y-o-y by
respectively, in the year to May 2021. As has been the resumption of the Umrah 8.3%. Over this period, RevPAR increased According to World Travel and Tourism
a result, market-wide RevPAR levels fell pilgrimage, the recent Eid holidays and by 7.4%. Performance in DMA has been Council, Saudi Arabia advanced to 16th
by 21% over this period to SAR 254. The increased summer domestic tourism, driven by Al Khobar, where RevPAR place in the global ranking of the largest
faltering performance is largely due to stemming from various international increased by 16.7% y-o-y, whereas in Travel and Tourism Economies in 2020,
-3.3% -18.4% 32.5% 20.8% 8.3% -0.8%
the significant reduction in corporate travel restrictions. As a result, in the year Dammam, over the same period, we have from 17th place a year earlier. Saudi
tourism in Riyadh due to Covid-linked to May 2021, ADR grew y-o-y by 32.5% to seen RevPAR fall by 33.7%. Al Khobar’s Arabia's progress in the ranking of top 20 RevPAR RevPAR RevPAR
travel restrictions. SAR 722, while occupancy increased by performance has been underpinned by countries comes from the government’s -21.1% 60.1% 7.4%
a fifth to nearly 49%. Over this period, the appeal of its beach resorts to domestic ambitious strategy to transform the
In the short term corporate demand RevPAR grew by a substantive 60% to tourists who have sought out staycation tourism sector and establish a vibrant
for hospitality in Riyadh is expected to SAR 352. options in the Kingdom due to Covid- entertainment and tourism industry.
remain subdued. In addition, with supply linked international travel restrictions. This is expected to be realised through Existing quality hotel supply market segmentation YTD May 2021
due to increase by 27%, or 4,800 rooms, Total quality hotel supply in Jeddah mega tourism projects in Qiddiya, along
by 2023, we expect sustained downward stood at 13,230 rooms as at the end of DMA currently has 11,800 quality hotel the Red Sea coast, Amaala, NEOM, Riyadh Jeddah DMA
pressure on both occupancy and ADR. May 2021. Taking into consideration rooms. This figure is expected to increase AlUla and Diriyah Gate. Together, these
13% 10% 16% 14% 10%
Total quality hotel supply in Riyadh only projects that have broken ground, by almost a fifth (18%) by the end of 2023 schemes will add around 70,000 hotel 24%
15%
currently stands at about 17,700 rooms. supply is expected to increase by 64% by to 13,800 rooms. rooms to the Kingdom, spread across 24%
27% 24%
the end of 2023 to 20,600 rooms, higher developments worth USD545 billion, all 23%
17% 34%
than Riyadh and DMA combined. to be completed by 2030.
26% 23%
Separately, the Saudi Cruise Company, Upscale Upper Upscale Upscale Upper Upscale Upscale Upper Upscale
launched in January 2021 by the Public Midscale Luxury Midscale Luxury Midscale Luxury
Ritz Carlton, Riyadh Investment Fund (PIF), has recently Upper Midscale Upper Midscale Upper Midscale
inaugurated its first cruise ship terminal
at Jeddah Islamic Port, with a capacity
of 2,500 passengers. The Saudi Cruise
Company expects to create 50,000 jobs Existing and upcoming quality hotel supply
in the sector by 2025, with 1.5 million
cruise visitors annually forecast by 2028. Riyadh Jeddah DMA
17,708 keys 13,230 keys 11,820 keys
In early August, the government
Existing Supply Existing Supply Existing Supply
announced the reopening of the
country’s borders to fully vaccinated
tourists from 49 countries (mainly +27% +64% +18%
the EU, US and UK), after a 17-month Increase in Increase in Increase in
closure. Clearly, this change will go supply until 2023 supply until 2023 supply until 2023
some way in aiding the recovery of the
tourism sector.
Source: Knight Frank, STR Global
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KEY CONTACTS
Harmen De Jong Faisal Durrani
Partner Head of Middle East Research
Real Estate Strategy & Consulting +971 4 4267 698
MACROECONOMIC OUTLOOK
+966 56 3045 356 Faisal.Durrani@me.knightfrank.com
Harmen.DeJong@me.knightfrank.com
Stephen Flanagan, MRICS Amar Hussain
Partner Data Manager
Head of Valuation & Advisory, MENA MEA Research
+966 55 8866 480 +966 55 2323 036
Stephen.Flanagan@me.knightfrank.com Amar.Hussain@me.knightfrank.com
Shehzad Jamal
Partner
According to the General Authority the centre of Saudi Arabia’s Vision last year. The Q1 reading of private sector Healthcare & Education
+971 56 4101 298
for Statistics, Saudi Arabia's real GDP 2030 and the reforms launched to contribution to Saudi GDP is now at the Shehzad.Jamal@me.knightfrank.com
contracted by 3.3% year-on-year as at bolster these sectors are already highest level in over 10 years.
the end of Q1. This sharp decline was being felt widely across the economy. Ali Manzoor
Partner
underpinned by a substantial fall in Indeed, the latest private sector PMI Looking ahead, the IMF forecasts a return
Hospitality & Leisure
hydrocarbon sector activity, which fell reading for the Kingdom stood at 55.8 to growth for the Kingdom’s economy. +971 56 4202 314
by 12% due to crude oil production cuts in July, representing the 11th month The region’s largest economy is expected Ali.Manzoor@me.knightfrank.com
agreed by OPEC+ in May 2020. However, of expansion and business growth. to see GDP growth of 2.1% in 2021, down
Abdullah M Alsayegh
the non-oil sector registered growth of According to the General Department from the 2.9% predicted in April 2021 Manager
3.3% over the same period. of Statistics, the private sector’s due to the lingering global impact of the Real Estate Strategy & Consulting
+966 55 2323 660
contribution to GDP rose to over 44% in pandemic. Abdullah.Alsayegh@me.knightfrank.com
The non-oil and private sectors are at Q1, compared to 41% at the same time
Yazeed Hijazi
Manager
Real Estate Strategy & Consulting
+966 54 525 4794
King Abdullah Financial District, Riyadh
Yazeed.Hijazi@me.knightfrank.com
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